would have had a material effect on share-based compensation expense.
Contingencies
. We account for contingencies in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. SFAS No. 5 requires that we record an estimated loss when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the
financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies
such as environmental, legal and income tax matters requires us to use our judgment. While we believe
that our accruals for these matters are adequate, if the actual loss is significantly different than
the estimated loss, our results of operations will be affected in the period that the difference
is known.
Three and Nine Months Ended September 30, 2007 Compared to Three and Nine Months Ended September 30,
2006
Revenues decreased $60,000 from $638,000 for the nine months ended September 30, 2006 to $578,000 for
the nine months ended September 30, 2007 and decreased $19,000 from $210,000 for the three months
ended September 30, 2006 to $191,000 for the three months ended September 30, 2007. These decreases
are primarily the result of a reduction in menu prices at the Companys first store and a lack
of customer acceptance of the F&B format at the second store. We are testing new menu concepts
as a solution to customer acceptance.
Selling, general and administrative expenses decreased $356,000 from $3,162,000 for the nine months
ended September 30, 2006 to $2,806,000 for the nine months ended September 30, 2007 and increased
$186,000 from $699,000 for the three months ended September 30, 2006 to $885,000 for the three months
ended September 30, 2007. The decrease for the nine month periods is primarily a result of decreases
in stock based compensation. The increase for the three month periods is primarily a result of the
receipt of a withholding tax refund in the 2006 period.
Research and development expenses decreased $125,000 from $1,384,000 for the nine months ended September
30, 2006 to $1,259,000 for the nine months ended September 30, 2007 and increased $42,000 from $482,000
for the three months ended September 30, 2006 to $524,000 for the three months ended September 30,
2007. The decrease for the nine month periods are primarily a result of a lower level of expenses
incurred during the first half of 2007 in connection with new wireless initiatives by the Company
with an increase in this activity during the three month periods.
Depreciation and amortization decreased $462,000 from $618,000 for the nine months ended September
30, 2006 to $156,000 for the nine months ended September 30, 2007 and decreased $123,000 from $174,000
for the three months ended September 30, 2006 to $51,000 for the three months ended September 30,
2007. These decreases are primarily a result of a decrease in amortization of medical technology
from the completion of amortization of early tranches of medical technology resulting from the Zargis
acquisition, net of an increase as a result of renovation to one of the F&B Restaurant stores.
Investment income increased $595,000 from a net gain of $268,000 for the nine months ended September
30, 2006 to a net gain of $863,000 for the nine months ended September 30, 2007 and decreased
$79,000 from a net gain of $232,000 for the three months ended September 30, 2006 to a net gain of
$153,000 for the three months ended September 30, 2007. Realized gains decreased $71,000 from net
gains of $139,000 for the nine months ended September 30, 2006 to net gains of $68,000 for the nine
months ended September 30, 2007 and increased $14,000 from net gains of $39,000 for the three
months ended September 30, 2006 to net gains of $53,000 for the three months ended September 30,
2007. Unrealized gains increased $758,000 from net losses of $470,000 for the nine months ended September
30, 2006 to net gains of $288,000 for the nine months ended September 30, 2007 and decreased $21,000
from net losses of $37,000 for the three months ended September 30, 2006 to net losses of $58,000
for the three months ended September 30, 2007. Interest income decreased $93,000 from $599,000 for
the nine months ended September 30, 2006 to $506,000 for the nine months ended September 30, 2007
and decreased $73,000 from $231,000 for the three months ended September 30, 2006 to $158,000 for
the three months ended September 30, 2007. These amounts will fluctuate based upon changes in the
market value of the underlying investments, overall market conditions and the amount of funds available
for short-term investment and are not necessarily indicative of the results that may be expected for any future periods.
Liquidity and Capital Resources
The
Company has recorded operating losses and negative operating cash flows in each year of its operations
since inception.
Net cash used in operating activities was approximately $4,300,000 for the nine months ended September
30, 2007 compared to net cash used in operating activities of approximately $2,000,000 for the nine
months ended September 30, 2007 and 2006. This increase is primarily a result of a $300,000 increase
in net loss after adjustment for non-cash items and a $1,700,000 increase in marketable securities.
Net cash used in investing activities was approximately $1,000,000 for the nine months ended September
30, 2007 compared to net cash used in investing activities of approximately $5,400,000 for the nine
months ended September 30, 2006. This net decrease in cash used in investing activities was primarily
the result of a $8,000,000 increase in maturities and a $4,000,000 increase in purchases of United
States Treasury bills and a $300,000 decrease in property and equipment additions during the nine
months ended September 30, 2007.
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